If you’re an owner-operator or fleet manager, knowing how to calculate cost per mile for commercial trucking is crucial for maintaining profitability. Accurately calculating this metric gives you clear insight into your operating costs, helping you make smarter decisions, prevent losses, and grow your profit margins. Without this knowledge, you risk jeopardizing your business’s financial health.
In this article, we’ll explain why understanding your cost per mile is essential for effective business planning and provide a step-by-step guide on how to calculate it. This information will empower you to keep your cash flow steady and ensure long-term success for your trucking business.
Why It’s Important to Know Your Cost Per Mile
Calculating cost per mile gives you the data you require to plan and manage your business’s finances effectively. Specifically, it helps with the following:
- Profitability and Pricing: When you understand your cost per mile, you can figure out how much you need to charge to make a profit and set your rates appropriately.
- Budgeting and Forecasting: Knowing your cost per mile lets you accurately track operating expenses like fuel, meals, and lodging, helping you pinpoint areas to cut costs and save. This insight also allows you to allocate budgets effectively as your business grows, ultimately boosting profit margins.
- Decision-Making for Fleet Operations: Analyzing cost per mile helps you make informed decisions on load selection, route optimization, and mileage reduction, ensuring that each delivery is profitable and maximizes revenue.
Breaking Down Cost Per Mile: What You Need to Know
To calculate your cost per mile, you must understand a few fundamental business metrics. These include:
Fixed costs
Your fixed costs are the unchanging expenses your trucking business incurs each month. These costs remain the same regardless of the number of loads you transport or miles you drive. Common examples include:
- Truck and insurance payments
- Truck payments (financing)
- License plates
- Rent
- Salaries
- Annual permits and licenses
Variable Costs
Unlike fixed costs, variable costs change monthly according to the number of loads and miles driven. The more loads and miles you cover, the higher your variable expenses will be. Some of the most common examples of these costs include:
- Fuel costs
- Maintenance costs
- Utilities
- Tolls
- Tires
- Food
- Unloading fees
- Freight-related fees (broker, dispatching services, etc.)
- Miscellaneous expenses
Miles Driven
There are two types of miles to track when calculating cost per mile – compensated and deadhead or empty miles. Compensated miles are the miles you cover when you’re on your way to make a delivery.
Deadhead or empty miles are the miles traveled after completing delivery, and your truck is empty. You’ll have to track both miles to estimate your per-mile expenditure accurately.
How to Calculate Cost Per Mile
To get your cost per mile, divide your total expenses by the total number of miles driven, i.e.,
Cost per mile = Total expenses ÷ Total miles
Here’s a step-by-step guide showing you how to apply the formula above:
Step 1: Select a time frame for Making Your Calculations
The first step to making reliable cost-per-mile calculations is to choose a time-frame for computation. This will guide your data collection process and minimize confusion.
If you’re working out your cost per mile for the first time, it’s best to pick a shorter time-frame, say a day or week, so you’ll have less data to work with and fewer figures to compute. If not, select an extended period, preferably aligning with how often you track other business metrics. It could be monthly, quarterly, or semi-annually.
Step 2: Determine Your Fixed Costs
After selecting your time-frame, track fixed expenses within that period by creating a spreadsheet listing each item. Add up these fixed costs for your chosen period to get an accurate total.
Remember that some expenses, like license plates, may be paid annually. If you’re calculating monthly costs, divide any annual expenses by 12. For example, if your yearly license plate fee is $1200, this would equal $100 per month.
Fixed costs provide a stable base for budgeting and financial planning since they remain constant. Accuracy here is key to setting reliable budgets and making precise forecasts.
Finally, review your fixed costs, such as commercial insurance or license fees, each time they renew, as these amounts can vary.
Step 3: Determine Your Variable Costs
After determining your fixed costs, work out your variable costs for the chosen time-frame. Because these costs differ significantly from one month to the next, the best way to record them is to create a column for variable costs on your spreadsheet. Then, use receipts to list all the variable expenses for a given month.
You could also use other tools, such as a fuel cost estimator, to get accurate estimates for your fuel costs if you don’t have all receipts handy. Once you record all variable costs, sum them up to get the month’s total variable expenses.
Track and monitor your variable costs as accurately as possible. It will help you identify ways to improve your business processes, cut costs, and increase revenue.
Following the example above, it’s clear that fuel and broker fees are the highest variable costs. If you introduce fuel efficiency strategies into your trucking business and work to replace brokers with regular clients, you’ll significantly reduce your variable costs and increase your profits.
Step 4: Track the Total Miles Driven
You cannot calculate the amount you spend per mile without knowing the miles you’ve traveled during the chosen time-frame. Knowing how many compensated and deadhead miles you’ve covered in a month is straightforward if you have electronic logging devices (ELDs), or other software to help you keep track of mileage.
If you don’t have any systems, you can work out your total mileage manually by checking your odometer readings at the start and end of the month. For instance, your odometer may read 70,000 miles at the beginning of the month and 80,000 miles at the end. That means you covered 10,000 miles that month.
Step 5: Calculate Your Cost Per Mile
To work out your cost per mile, add up your total fixed and variable costs. Then, divide the total cost by the number of miles driven.
In our case, the total expenses will be—$2900 + $6530 = $9430 (I.e., the fixed costs under step 2 plus the variable costs under step 3).
The cost per mile is $0.943. That is the total expenses ($9430) ÷ the miles driven under step 4 (10,000).
Conclusion
Calculating cost per mile will help you evaluate your business’s financial health. It can also guide you to the correct business moves and make the most of your career in the trucking industry. You’ll know what to do, where, and how to keep your business costs low and profits high.
For example, when tracking your mileage, you can know the number of deadhead miles you cover and look for ways to minimize them. And because deadheading still uses fuel – the second-largest operating cost of trucking businesses – reducing dead miles will help you reduce fuel consumption, helping you to save and keep more money.
Our guide above will help you get your cost per mile in no time, but if you prefer a simpler method, consider using an online cost-per-mile calculator. For more tips you can follow to ensure your trucking business thrives, visit our blog.
